Book Reviews Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism. By George A. Akerlof and Robert J. Shiller. Princeton University Press, Princeton, NJ, 2009. 230pp., $16.47. ISBN: 978-0-691-14233-3. Martin Rapetti a,b a University of Massachusetts, Amherst b CEDES, Argentina The mid-2000s were a happy time for mainstream macroeconomics. After years of theoretical developments involving rational expectations, real business cycles, and microfoundations, macroeconomic theory seemed to reach a promising consensus. This was clear in the assessment of Olivier Blanchard [2008, p. 2], who stated just one month before the collapse of Lehman Brothers that ‘‘after the explosion y of the field in the 1970s, there has been enormous progress and substantial convergence. y [A] largely shared vision both of fluctuations and of methodology has emerged. But not everything is fine. Like all revolutions, this one has come with the destruction of some knowledge, and suffers from extremism, herding, and fashion. But none of this is deadly. The state of macro is good.’’ This happy time in modern macroeconomics was shaken by the global financial crisis. A sense of dissatisfaction has emerged among many economists, including leading figures such as Nobel laureates Robert Solow, Joseph Stiglitz, and Paul Krugman. According to the critics, the contrast between the economic crisis and the world pictured by modern macroeconomic theory was striking. Many critics believe that macroeconomics went off track in the 1970s, with its extremist pursuit of a ‘‘scientific’’ theory strictly derived from individual optimization of material well- being. Some argue that it is time to get back on track by recovering important knowledge from previous generations of economists and blending it with relevant developments of the more recent period. The million-dollar question is how such a blend should be done. George Akerlof, Nobel Prize winner in Economics in 2001, and Robert Shiller, a potential Nobel laureate according to many, have a proposal — modern macroeconomics needs to reintroduce the notion that human decision-making is heavily influenced by animal spirits. The term is borrowed from John Maynard Keynes who used it in his General Theory to refer to ‘‘a spontaneous urge to action’’ motivating individuals to invest beyond the dictum of rational calculation. Keynes’s animal spirits found their raison d’eˆtre in uncertainty. Contrary to risk, a situation in which individuals know the mathematical probabilities associated with future events, under uncertainty there is no basis for calculating such probabilities. According to Keynes, individuals tend to operate under uncertainty; consequently their investment decisions are necessarily based on animal spirits, which supplement and support rational calculations. Akerlof and Shiller use the term in a broader sense. They propose the following taxonomy. Imagine a square divided into four boxes, denoting motives that are economic or non-economic and responses that are rational or irrational. Modern macroeconomics focuses on the behavior of people who rationally respond to economic motives. The other three boxes are the realm of Akerlof and Shiller’s animal spirits, including economic motives and non-rational behavior, which encompasses Keynes’s concept of uncertainty. These three boxes also correspond to Eastern Economic Journal, 2012, 38, (276 – 281) r 2012 EEA 0094-5056/12 www.palgrave-journals.com/eej/